In Re: Triveni Engineering and Industries and Another

Pankaj Mithal, J.—This company petition has been moved jointly on behalf of Triveni Engineering and Industries Limited having its registered office at Deoband in District Saharanpur (in short de-merged company) and Triveni Turbine Limited having its registered office at NOIDA, District Gautambudh Nagar (in short resulting company) u/s 391/394 of the Companies Act, 1956 (hereinafter referred to as an Act) for sanction of the scheme of arrangement which has been filed as annexure-1 to the petition.

The scheme broadly provides for separation of one of the units, i.e., relating to steam turbine business of the demerged company and for its merger with the resulting company. The scheme also stipulates that all assets and liabilities of the steam turbine unit (demerged undertaking) shall stand transferred to the resulting company from the appointed date of the scheme. In all other respects the two companies would continue as in the past.

The aforesaid scheme is stated to have the approval of the board of directors of both the companies.

In Company Application No. 15 of 2010 this Court vide order dated 9.9.2010 dispensed with the meeting of the shareholders and creditors of the resulting company as it had only one shareholder and a creditor who happened to be the demerged company only. However, to ascertain the wishes of the shareholders, secured and unsecured creditors of the demerged company, the court fixed their meetings on 13.10.2010, 14.10.2010 and 15.10.2010 to be convened under the respective chairman/alternate chairman appointed. Notices were accordingly directed to be issued both under certificate of posting individually to all concerned and by publication in the newspapers ''Statesman'' (English) published from New Delhi and ''Amar Ujala'' (Hindi) published from Meerut.

In pursuance to the above, it has been stated that notices of the meetings as fixed by the court were sent individually to each of the shareholders, secured and unsecured creditors of the demerged company under certificate of posting 21 clear dates before the date of the meetings at their last known registered address. The notices were accompanied by the copy of the scheme of arrangement, explanatory statement and proxy form. The notices were also published in the newspapers ''Statesman'' (English) from New Delhi and ''Amur Ujala'' (Hindi) from Meerut both dated 16.9.2010.

The meetings as scheduled were held under the respective chairmen appointed by the court. The respective chairmen have filed their reports on 20.10.2010, 21.10.2010 and 22.10.2010 supported by their affidavits stating that the resolution accepting the scheme of arrangement, on the scheme being duly circulated, read out and explained in the meetings to all concerned, was approved with full majority and there was no objection against the de-merger stipulated in the scheme.

This petition on being presented was nominated to me by the Hon. Chief Justice.

Upon hearing vide order dated 8.11.2010, I directed for advertisement of the petition in the same two newspapers in which the notices of the meetings were published fixing 14 December 2010 as the date for hearing of this petition. Notice of this petition was also directed to be issued to the Regional Director, Northern Region Ministry of Corporate Affairs, NOIDA, U.P.

An affidavit of service has been filed by Sri R.P. Agrawal, learned Counsel for the Petitioner companies bringing on record the originals of the newspapers ''Statesman'' (English) of New Delhi and ''Amar Ujala'' (Hindi) of Meerut both dated 13th November, 2010, containing the publication of notice of hearing of this petition. Notice of the petition is also stated to have been served upon the Regional Director, Northern Region, Ministry of Corporate Affairs, NOIDA, U.P. on 10.11.2010.

The official liquidator attached to this Court has filed a representation on affidavit of the Regional Director, Northern Region, Ministry of Corporate Affairs, NOIDA, U.P., dated 30.11.2010 to the effect that the Petitioners companies be required to comply with the relevant provisions of the Act for satisfaction and creation of charge in demerged and resulting company respectively, as the name of the resulting company can not be substituted in place of de-merged company in the charged documents. The official liquidator has further brought on record letter dated 31.12.2010 of the joint director" issued on behalf of the Regional Director, Northern Region, Ministry of Corporate Affairs, NOIDA, U.P, permitting the Official Liquidator to appear before the court and to plead the stand taken by him in the affidavit dated-30.11.2010.

The Petitioner companies have filed reply on affidavit to the above representation stating that proposed modification/satisfaction/creation of charges in respect of the assets of the companies affected by the scheme of arrangement necessary required Form No. 17 and all other formalities will be completed by both the companies with the Registrar of the Companies U.P., Kanpur.

The sanction of the scheme as prayed for in this petition has been opposed by only A.K. Builders and Suppliers, having its registered office at Aliganj, Lucknow by filing written objections as well as supplementary objections. On its behalf an application No. 18729 of 2011 for dismissing the above company petition and an another application No. 50549 of 2011 for stay of proceedings of this petition have also been filed.

Sri R.P. Agrawal, learned Counsel for the Petitioner, has filed reply to the objections and the above applications.

I have heard Sri Prashant Kumar along with Sri S.K. Bisaria, learned Counsel appearing for the objectors A.K. Builders and Suppliers, Sri R.P. Agrawal, learned Counsel for the Petitioners and the official liquidator representing Regional Director, Northern Region, Ministry of Corporate Affairs, NOIDA, U.P.

Sri Prashant Kumar has submitted that the objector company owes about Rs. six crores as on December, 2010, to the demerged company and, as such, if the scheme is implemented, there is possibility of its claim being defeated. Probably he has no objection against the scheme of arrangement accept for the apprehension of its claim being adversely affected. However, he has opposed the petition. His first and foremost objection is on the ground that the objector company had lodged a caveat but as the same was not reported by the office of the court, it lead to the passing of an ex-parte order directing for publication of notices of the petition in the newspapers. His other objection is that the summons issued in this petition were not in accordance with law, i.e., in prescribed Form 33. The publication of the notice of the petition in the newspaper published from Meerut is no publication in the eyes of law as the registered office of the company was situate at Saharanpur and, therefore, the publication ought to have been made in the local newspapers published from Saharanpur. His last objection is that the scheme was not actually approved by the majority of shareholders, secured and unsecured creditors and only 32% of them have approved it.

Sri R.P. Agarwal, learned Counsel for the Petitioners, at the very outset, submitted that the objector A.K. Builders and Suppliers happens to be an unsecured creditor and in respect of its dues on negotiation, the matter was finally settled and it was agreed that in full and final settlement a sum of Rs. 2.85 crores be paid to the objector for which the Petitioners are ready even today and are possessed with the cheque of the relevant amount. He further stated that there is no difficulty in so far as protection to the dues of the objector is concerned. The demerged company is ready to make the payment, once the dues are settled again, if the negotiations earlier entered into are not acceptable to the objector. Alternatively, he undertakes to treat the objector as a secured creditor of the demerged company and to satisfy the dues in accordance with law.

The offer either way was not acceptable to Sri Prashant Kumar, learned Counsel appearing for the objector A.K. Builders and Suppliers. Therefore, I was left with no option but to proceed and decide the objections on merits.

A perusal of the objections raised on behalf of objector A.K. Builders and Suppliers do reveal that the objector possibly has no objection against the scheme of arrangement except for the fear that the payment of its dues may get affected but no specific allegation has been made as to how its dues would get affected. The demerged company which owes money to it would continue to exist with sufficient assets to satisfy its dues even after separation of the demerged undertaking as per the scheme of arrangement. So the apprehension is misconceived especially when it is not the case that the assets left with the demerged company would not be good enough to take care of the dues of the objector. The demerged company has offered to secure its dues also but the offer was declined. Thus, there is no cause of concern left on this aspect.

The primary objection appears to be that the scheme cannot be accepted as it has not been approved by the majority of the shareholders.

Any scheme of arrangement between two companies involves the shareholders and the creditors of those companies on one hand and the companies on the other hand. A scheme which may have been formulated by the management of those companies has also to be approved by their shareholders and the creditors. In the matter of sanction of such a scheme the court is not concerned with the commercial viability of the scheme or as to whether it would benefit the companies or their shareholders/creditors provided the proposed scheme is otherwise fair and is not intended to defraud the shareholders/ creditors. The court is only enjoined to consider as to whether the statutory requirements necessary for the sanction of the scheme have been completed, the wishes of the shareholders/creditors have been ascertained and the scheme has been approved by them by majority in duly convened meetings. The court may go a step further to find out that the scheme is not unfair and unreasonable or fraudulent in nature.

Section 391(2) of the Act contemplates that a scheme of arrangement if approved by the majority in number represented by 3/4 of the value of the creditors or class of creditors or members or class of members present and voting either in person or by proxy at the meeting, and if sanctioned by the court, shall be binding on all. Thus, to make a scheme of arrangement binding, following conditions are mandatory:

(i) sanction of the scheme by tribunal/court; and

(ii) approval of the scheme by majority in number representing 3/4 in value of the creditors or class creditors/members present and voting either in person or by proxy at the meeting.

The aforesaid provision further provides that no such scheme shall be sanctioned unless the company or the person making the application for sanction of the scheme has disclosed all material facts relating to the company on an affidavit such as (a) latest financial position of the company, (b) latest audit report about the accounts of the company and (c) pendency of any investigation proceedings in relation to company under Sections 235 to 351 and the like.

In In Re: Jaypee Cement Limited, it has been held that Section 391(2) takes good care of the interest of small investors including creditors as it provides for the approval of the scheme of arrangement by majority of the members/creditors present and voting and also by majority representing 3/4 in value of the members/creditors present and voting. Therefore, the twin requirement is that the scheme must be approved by the majority of members/creditors present and voting as well as by majority representing three-fourth in value of the member/creditors present and voting.

The report of the chairman of the meeting of the equity shareholders which is supported by his affidavit discloses that a total of 287 shareholders in person and proxy were present in the meeting. Nine of them abstained from voting. All the other 278 members present voted in favour of the scheme of arrangement and as such the scheme was approved unanimously by all the equity shareholders present and voting. It further states that the value of the shares possessed by the shareholders present was Rs. 22,86,82,371 and the value of 278 shareholders who voted in favour of the scheme of arrangement was Rs. 22,86,82,337 which was much more than three-fourth of the value of the shareholders present and voting.

The report of the chairman of the meeting of secured creditors which is also supported by an affidavit of the chairman states that in all 17 creditors were present in person and by proxy and the value of the said creditors was 8,62,46,42,861. All of them voted in favour of the scheme of arrangement and as such the resolution was carried out unanimously as well as by 100% of the value of the secured creditors present and voting.

The report of the chairman of the meeting of the unsecured creditors along with his affidavit states that a total of 872 unsecured creditors were present in person or by proxy and their net value was Rs. 164,06,557. 72. Out of those, 72 of them did not vote. Only 800 of the aforesaid secured creditors casted their votes. 13 votes were declared invalid. The remaining 787 votes were all in favour of the scheme of arrangement. The net value of the aforesaid 787 unsecured creditors was 163,64,83,239. Thus the motion was again carried out by the majority of unsecured creditors as well as by more than 3/4 in value of the unsecured creditors present and voting.

In view of the aforesaid report of the chairman which has not been disputed by anyone not even by the objectors, the scheme of arrangement requiring sanction has been approved by the majority in number of the shareholders, secured and unsecured creditors present and voting at the meetings and also by more than 3/4th in value of the shareholders secured and unsecured creditors present and voting at the meetings.

The argument of Sri Prashant Kumar that the scheme was actually approved by 32% of the shareholders, secured and unsecured creditors is misconceived and is unacceptable.

It is true that the registered office of the demerged company is situate in district Saharanpur and that of the resulting company in NOIDA in district G.B. Nagar in U.P. The notice regarding convening the meetings of the shareholders, secured and unsecured creditors as directed by this Court were published in two newspapers one in English and the other in Hindi published from Delhi and Meerut respectively on 16.9.2010. The notice was not published in any local news paper published from District Saharanpur. It may be noted that Saharanpur is one of the districts of the Meerut Division, Meerut. There is no dispute that the above newspapers are well recognized newspapers having wide circulation through out the region. There is no avernment that the aforesaid two newspapers have no circulation or negligible circulation in the district of Saharanpur. The purpose and object of publishing notice in the newspaper is to give information about the meetings to be held and of hearing of the petition for acceptance of the scheme of arrangement and to make it known to the public to enable them to place their version or if necessary to object the scheme. The publication of the notices in the above newspapers amply serves the above purpose. This is in addition to service of individual notices to all concerned under certificate of posting.

No rule has been shown to me, which requires that the notices of such meetings are required to be published in the newspapers of the district concerned. On the contrary, Rule 74 of the Companies (Court) Rules, 1959 (hereinafter referred as rules) only provides that the notice of the meetings shall be advertised in such newspapers and in such a manner as the court may direct. Such a notice has to be in prescribed Form number 38 and be published 21 clear days before the date fixed for the meeting.

The perusal of the original newspapers indicates that the notices were published well before 21 days of the scheduled date of meetings. The reports of the chairman further fortifies that individual notices were also sent in the prescribed Form No. 36 to all the shareholders, secured and unsecured creditors under certificate of posting 21 days before the date of the meeting and were accompanied by the scheme of arrangement, statement as required u/s 393 and proxy form again in the prescribed Form No. 37.

Notice of hearing of this petition was also duly published in the same newspapers and there is no irregularity or illegality in its publication.

In view of the above facts and circumstances, there is no irregularity or default in issuing or publishing notices of the meetings or of hearing of this petition. The meetings of the shareholders, secured and unsecured creditors as directed to be held were duly held. They cannot stand vitiated merely for the reason that the notices of such meetings were not published in the local newspapers of the district.

Lastly, the argument that the summonses to convene meetings were not in Form 33 as envisaged by Rule 67 of the rules has no legs to stand at this stage. No doubt, Rule 67 of the rules provides that an application purported to be u/s 391 for convening a meeting of members or creditors shall be by a judge''s summon in Form 33 supported by an affidavit. Judge''s summons as defined under Rule 2(9) of the rules means summons returnable before the judge in chamber or in court. However, all this is not relevant while considering the scheme of arrangement for sanction after the meetings have been held. Moreover, this aspect of the matter has already been considered and decided by me while considering the application/objections of A.K. Builders in Company Application No. 15 of 2010 vide order dated 18.2.2011 In Re: Triveni Engineering and Industries and Another,

The submission that the objector was not given notice of the petition despite its caveat in no way affects the merit of the scheme of arrangement put for sanction. It may be another thing that proprietary demands service of copy of the petition to the caveator when a caveat has been duly lodged but it makes no difference in the present case.

At the initial stage of issuance of notice on the petition being presented no effective order affecting the rights of any party is generally passed and as such it is immaterial as to whether at that point of time the objector is actually heard or not. The objector gets right to appear and to be heard against the scheme only at the time when the scheme is to be considered on merits for being sanctioned. The objector was given due opportunity to file objections and he has also been heard on that, therefore, there cannot be any possible grievance on its part to allege any prejudice. In this view of the matter, even if the caveat lodged by the objector was not reported by the office of the court and the objector was deprived of the notice/copy of this petition in the first instance when it was filed no prejudice or harm was caused to it to warrant acceptance of the above argument. The submission in this regard as such has no merit and is rejected.

The Petitioners have brought on record the latest financial position of both companies, the latest auditor''s report regarding the accounts of both the companies and have started that there is no investigation pending against the companies. There is nothing on record which would suggest that the scheme sought to be sanctioned is otherwise in any way unfair or unreasonable which may amount to defraud either the state exchequer or the members/creditors.

The objections are meritless and stand rejected.

In view of the aforesaid facts and circumstances, I am of opinion that the scheme of arrangement (annexure-1) to the petition deserves to be sanctioned and is hereby sanctioned. It shall be come into effect from the date of filing a certified copy of this order with the Registrar.

Petition allowed and the Company Application No. 15 of 2010 also stands finally disposed of.